Austin Corporation's management took the following actions, which went into effect on January 2, 2014. Each action involved an application of present value.
Austin Corporation enters into a purchase agreement that calls for a payment of $250,000 three years from now.
Bought out the contract of a member of top management for a payment of $25,000 per year for four years beginning January 2, 2015.
Assuming an annual interest rate of 10 percent, answer the following questions using Table 1 and Table 2.
In action a, what is the present value of the liability for the purchase agreement?
In action b, what is the cost (present value) of the buyout?